Alisa Wolfson at MarketWatch answered a 63-year-old reader with $1.6 million in a pension and $1 million in stock managed by an adviser charging 1%. The reader was getting a 7% return and wondered whether it was time to find someone new.
My first response was about the relationship, not the return. Typically, when we are doing financial planning for clients, we are meeting with them two to four times a year. If we are only doing asset management, we still meet with them twice a year. A reader who is asking a newspaper columnist this question instead of their adviser probably has a communication problem before they have a performance problem. The first step is a meeting where the adviser explains what the portfolio is built to do and why.
My second response was that 7% is not a verdict on its own. As long as the rate of return fits into your overall plan or goals, it may be exactly right. We have clients who are happy at a 5% rate of return, while being extremely conservative, because it still hits their retirement income plan. We have others who want or need higher levels of return to hit theirs. Return should not be assessed in a vacuum, but in relation to the client's needs and plan.
For a 63-year-old with a large pension, a 7% return on a portfolio that is not being asked to carry the whole retirement might be a sign the adviser is doing the job well. Ask what the money is for. Then judge the number.
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